Recent earnings reports from large industrial diagnostic companies in the food safety sector indicate a slowing of growth in this typically robust market. What’s going on? Has growth in the food safety testing market peaked, paused with the economic downturn, or just moved elsewhere?
Strategic Consulting (SCI) has just released our 19th market research report on the industrial microbiology market. Industrial Microbiology Market Review: Global Review of Microbiology Testing in the Industrial Market (IMMR-4) examines the industrial diagnostics market, which includes the food, beverage, pharmaceutical, personal care products, environmental water and industrial process sectors. You can read more about IMMR-4 here.
In addition to a detailed analysis by test volume, market value, organisms tested and methods used, IMMR-4 also provides a thorough discussion of market trends, drivers, and regulatory and topical issues specific to each sector. IMMR-4 also includes a business review of competition, consolidation and key success factors, and profiles 20 leading test manufacturers serving the industrial diagnostics market.
Extensive Primary Research in the Industrial Market
IMMR-4 is based on extensive primary research into all aspects of the industrial microbiology market, including detailed interviews with producers, regulators and diagnostics competitors. SCI conducted more than 650 interviews in 23 countries around the world, with close to one-third of those interviews conducted in Asia (China, India, Indonesia, Thailand, Singapore and Vietnam) due to the region’s economic importance, in both production and consumption, in the industrial market sectors.
Interview data and other information were analyzed using a combined bottom-up and top-down approach. For example, overall market estimates were derived from the test volume numbers given by production companies, and then triangulated with other information gathered through SCI interviews and pubic information research.
In hundreds of interviews over the last two years, when QA/QC managers in production plants were asked about test volume growth, the general response was “yes, growth”. The drivers for test volume growth, such as new regulations and ongoing customer demand, are not consistent across all geographies however. North American and Asian/ROW plants report growth in test volumes, while test volume in European facilities remain flat. Although somewhat diminished, growth in micro test volumes continues even in the face of world economic issues.
In fact, the total market for industrial microbiology tests is projected to increase 25.7% over the next five years, from 2.0 billion tests in 2014 to 2.5 billion tests in 2019. This represents a 4.7% compound annual growth rate (CAGR) in test volumes, which is slower than over the past 20 years. In other words, testing is increasing but not as robustly. With many production companies implementing process improvements over the last decade, growth in test volume may be tied to increased consumption alone going forward.
What’s Up with Recent Financial Reports from Diagnostics Companies?
Given the test volumes and projected growth reported by food production companies, I was a bit surprised by the financial reports of some key companies in the food safety testing market. Roka Bioscience had no new sales of its Atlas System last quarter. Neogen reported that their food safety business grew only marginally (3%) for the current quarter. And although we can’t isolate the food safety business of industry giant bioMérieux, overall their industrial business was flat for the first nine months of the year.
With leading businesses showing little or no growth in the sizeable food safety testing market, are we seeing a market that has become overcrowded, with little or no growth remaining? Based on financial reports, it’s hard to know specifically where growth remains and where things are flat or declining, as these large companies do not report on a geographic or product basis.
Is it time to recalibrate expectations for the traditionally robust food safety testing market? Has the food safety diagnostics business reached its peak in spite of major drivers such as continued media coverage of foodborne outbreaks, ongoing implementation of FSMA, industry-wide efforts such as the Global Food Safety Initiative (GFSI), and the increased consumption of food that is sourced from all over the world?
Perhaps it’s time to recalibrate expectations for the traditionally robust food safety testing market.
I’m going to venture an uncharacteristic answer and say “perhaps”. Perhaps the increased focus on industry testing over the last ten years means that for the most part, major food producers have their testing programs (and thus volumes) in place. Perhaps the five-year economic malaise that has impacted so many countries and businesses is now affecting the until now unmatched growth engine of food safety diagnostics? Or perhaps it is all of the above.
Food Contract Labs Taking Market Share
One other possibility comes out of SCI’s recent review of a particular segment of the market, contract test labs. Over the past few years, there has been a shift in where analysis is performed with some sectors sending a greater percentage of samples outside to corporate facilities or contract testing labs. The Food Sector, driven by lab accreditation requirements among other factors, is utilizing contract labs more heavily in certain geographies.
Is competition for diagnostic manufacturers coming from businesses that had previously been among their best customers? Eurofins reported 15% growth in revenues for the first nine months of 2014. As food contract labs grow their market share in food safety testing, they are able to increase their influence over the test methods and products in use, and their purchase patterns can be different from food plant labs.
Stay tuned. As 2015 approaches, we’ll continue to watch, report and comment, here and on Linked In and Twitter.
And in the meantime, let us know what you think. Are the days of double-digit growth in food safety testing a thing of the past?
